New law could help the small business cashflow crisis, according to the Government
A new set of rules, laid out in the draft ‘Business Contract Terms (Assignment of Receivables) Regulations 2018’, have been designed to combat the longstanding issues of late payments, which plague small businesses cashflows.
Created by the UK government, the new legislation, debated this month in Parliament, should help small business get paid by bigger organisations sooner and reduce the issues related to late payments.
Part of the Government’s wider national Industrial Strategy, the new measures are designed to make it easier for small businesses to access invoice finance and eliminate restrictive terms in contracts.
It comes after official research found that around £1 billion is owed to small business at any one time.
By utilising invoice finance a business is able to raise funds by assigning the right to be paid to a finance provider who will then pursue late payers. The amount paid can be up to 80 per cent or more of the value of the invoice.
Under current legislation, many small suppliers often find that their contract with a larger company may prevent it from securing invoice finance.
However, the Business Contract Terms (Assignment of Receivables) Regulations 2018 dictates that any such contractual restrictions entered into after 31 December 2018 (with some exceptions) would have no effect and could be disregarded by small businesses and their finance providers.
Ahead of the debate in Parliament, Kelly Tolhurst, Small Business Minister, said: “The UK’s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day.
“These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply.”
The Government claims that restrictive terms are often employed by large businesses to force smaller suppliers to remain with them, safe in the knowledge that SMEs are unable to negotiate fair changes because they do not have a significant position in their respective marketplaces.
SMEs often experience cashflow issues as a result of unpaid invoices, which often has an impact on their ability to grow.
Whilst many welcome these new proposals, it isn’t the first time that a Government has promised an end to the UK’s late payment culture and so many experts are viewing this move with a pinch of scepticism.